Punch Says It May Fail Covenant Tests Amid Debt Standoff

Punch Taverns Plc (PUB) said its financing
structures may breach financial covenant tests due tomorrow and
a failure to conclude a debt restructuring will result in a
default by May 15.

Punch has been negotiating with stakeholders since October
2012 to cut its 2.3 billion-pound ($3.85 billion) debt burden as
the owner of more than 4,000 pubs seeks to combat a decline in
sales. It extended a deadline for investors to vote on its
restructuring proposal earlier this month.

The company has 16 classes of notes across two
securitization financings, known as Punch A and Punch B. Failure
to meet the second-quarter debt service coverage ratio on April
15 “would result in a default in the relevant securitization
within a further 30 days,” the company said in a statement.

Debt holders have spurned four offers from the company
since negotiations began, saying they’re too generous to lower-ranking investors and shareholders. Punch, based in Burton-upon-Trent, England, had proposed cutting debt by canceling some
notes in return for cash payments or issuing new securities.

“Failure to effect a restructuring in the near-term will
lead to a default in both the Punch A and Punch B
securitization, which is expected to have a material negative
impact on the business,” Punch said in the statement. “It is
in the interest of all parties to agree a consensual
restructuring ahead of the next covenant reporting date” and
“to put in place a sustainable long-term capital structure for
the securitizations.”

Creditors are preparing an alternative plan that was
described earlier this month as “well advanced” by a person
with knowledge of the matter, who asked not to be identified
because they’re not authorized to talk about it. At least 75
percent of note holders in each class must support an offer for
it to be accepted.